What you should know about the PH startup ecosystem

Planning to quit your job to start your own business? Interested in investing your money and resources to a startup? Here are the things you should know.

The 2017 Philippine Startup Survey provided significant insights into the local startup scene. Begun by QBO Innovation Hub and PwC Philippines, the survey was conducted among 106 startup founders to provide a snapshot of the current state of startups in the country.

A startup is not your typical brick and mortar business. According to Trade and Industry Undersecretary Nora Terrado, what distinguishes a startup is its potential to scale, the use of innovative technologies and business models, and the intention to make a difference by solving a social problem.

The report says there are now more than 300 startups in the country, most of which were founded between 2012 and 2017.

Terrado added that technology does not only include internet and mobile applications, but also innovations in the field of biotechnology, electricity, and finance.

Capital is still the biggest challenge for startups

Majority – or 88% of the interviewed founders – said capital requirement was the number one hindrance they encountered when they were starting, followed by regulatory requirements (54%), and general economics or business conditions (50%).

About 63% of the founders said they plan to raise funding through external parties such as venture capital funds and other investors.

To raise equity-free funding, some of them also availed of grants and joined startup competitions.

Founders are thinking global and aiming to go public

Tapping international markets such as Indonesia, Thailand, Malaysia, and Vietnam in the next 3 to 5 years was identified as a growth plan and strategy by 95% of the founders.

Among the interviewed founders is Rappler's CEO and Executive Editor, Maria Ressa. Rappler is now present in Indonesia. Other local startups that have expanded to other ASEAN countries are Flyspaces, an online platform for coworking spaces and Coins.ph, a financial services platform.

More so, 63% of the startup founders said they are aspiring to conduct their initial public offering (IPO) in the next 5 to 7 years.

Manny Ayala, Managing Director of Endeavor Philippines, said in the report that they look at 3 things when evaluating startups to invest in: the founder or entrepreneur, the business, and the timing.

Goldy Yancha, Associate Director of Ideaspace, added that when it comes to providing their equity-free grants, they look at the team's composition, their understanding of the market size and their business value proposition.

The survey estimates that there are more than 30 angel investors, 20 venture capitalists, and 20 incubators and accelerators in the country.

More than finances, startups are looking for experienced investors

A total of 94% of the startup leaders said they are planning to welcome an investor in the next three years.

However, more than financial capacity, 72% of them ranked industry expertise and experience as their top consideration when it comes to tapping potential investors.

Philippine laws and regulations not conducive to startups

The legal and regulatory systems of the country are not innovation-friendly, said Atty. Alexander Cabrera, Chairman and Senior Partner of PwC Philippines.

He added that although there are pending bills such as the Innovative Startup Bill (Senate Bill No. 175) and the Philippine Innovation Act, which shall establish innovation-related policies and provide startups with tax incentives and funding, the government should provide alternatives to address these issues immediately.

The startup founders identified the following as main areas for improvement: improved tax incentives for startups (59%), improved ease of doing business (59%), and easier access to capital (55%).

The spirit of entrepreneurship is seen to be growing in the Philippines as evidenced by the existing 900,000 micro, small, and medium enterprises (MSMEs) which make up 90% of all enterprises in the country.

In the past 5 years, more Filipinos, specifically millennials, are venturing into entrepreneurship. The number of investors, mentors, and incubators is growing. Government and private sector collaborations have also improved.

While the local startup community looks up to more mature startup ecosystems like Silicon Valley and Singapore, the report concluded the Philippines was off to a great start.